Publication - Economic Bulletin - Economic and monetary developments
Copyright: European Central Bank
Directorate General Communications
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Overview
At its monetary policy meeting on 8 September 2016, the Governing Council assessed the economic and monetary data which had become available since the July meeting and discussed the new ECB staff macroeconomic projections.
The comprehensive policy measures that have been adopted continue to ensure supportive financing conditions and underpin the momentum of the euro area economic recovery. As a result, the Governing Council continues to expect real GDP to grow at a moderate but steady pace and euro area inflation to rise gradually over the coming months, in line with the path already implied in the June 2016 staff projections. Overall, while the available evidence so far suggests resilience of the euro area economy to the continuing global economic and political uncertainty, the baseline scenario remains subject to downside risks.
Economic and monetary assessment at the time of the Governing Council meeting of 8 September 2016
Moderate global growth continued in the first half of 2016. Looking ahead, global growth is expected to recover gradually. Low interest rates, improving labour markets and growing confidence support the outlook for advanced economies, although the uncertainty generated by the referendum in the United Kingdom on EU membership will weigh on demand in that country. As regards emerging market economies, economic activity in China is expected to slow, while the outlook for large commodity exporters remains subdued, despite some tentative signs of stabilisation. Risks to the outlook for global economic activity remain on the downside.
Between early June and early September euro area and global financial markets remained relatively calm, apart from the immediate period around the UK referendum.
In the period leading up to the referendum on 23 June, global financial markets exhibited increasing volatility, which spiked on the day following the referendum. Since then, financial market volatility has receded and most asset classes have recovered their losses. At the same time, long-term euro area bond yields remained significantly below their pre-referendum levels, and bank equities continued to underperform the wider market index.
The economic recovery in the euro area is continuing.
Euro area real GDP increased by 0.3%, quarter on quarter, in the second quarter of 2016, after 0.5% in the first quarter. Growth was supported by net exports as well as a continued positive contribution from domestic demand. Incoming data point to ongoing growth in the third quarter of 2016, at around the same rate as in the second quarter.
Looking ahead, the Governing Council expects the economic recovery to proceed at a moderate but steady pace.
Domestic demand remains supported by the pass-through of the monetary policy measures to the real economy. Favourable financing conditions and improvements in the demand outlook and in corporate profitability continue to promote a recovery in investment. Sustained employment gains, which are also benefiting from past structural reforms and still relatively low oil prices provide additional support for households’ real disposable income and thus for private consumption. In addition, the fiscal stance in the euro area is expected to be mildly expansionary in 2016 and to turn broadly neutral in 2017 and 2018. However, the economic recovery in the euro area is expected to be dampened by still subdued foreign demand – partly related to the uncertainties following the UK referendum outcome – the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms.
Directorate General Communications
Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany
Tel.: +49 69 1344 7455, E-mail: media@ecb.europa.eu
Website: www.ecb.europa.eu
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